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COMMODITIES

JULY 31, 2010

China's Ore Demand Flies Under the Radar
Shipments of Mineral-Rich Matter Obscure Its Higher Needs
By CAROLYN CUI And LIAM PLEVEN

A boatload of sandy, gray muck set out from Alaska a week ago, bound for China. Buried inside the detritus were tiny flecks of gold that China National Gold Group Corp. plans to extract. The shipment is one of many filled with mineral-rich matter that are sailing into Chinese ports and forming a key, but little-noticed, part of efforts to sate the nation's demand for raw materials. The Alaskan gold won't appear in China's official imports report or in trade data from major commodity exchanges or bullion markets. China's purchases of copper scrap and investments in oilsands projects in Canada also fly under the radar, publicly disclosed but not widely watched. Observers say the low-grade ore making its way to China's shores adds to evidence that Chinese demand for raw materials is greater than standard indicators show, and greater than many investors realize.

View Full Image COEUR D'ALENE MINES CORP.

Investors instead closely track China's consumption of widely sought commodities, like gold bullion, refined copper and crude oil. Signs that its hunger is rising or falling can move those markets, and help define its broader economic growth. During this year's first half, for instance, China's refined copper imports fell 13.5%, a decline of 239,000 tons from the same period last year—an apparent sign of weaker demand. But China raised imports of copper scrap and concentrate, which needs further processing. The 362,000 tons of added copper was enough to turn China's imports to a net gain, according to Barclays Capital. In the case of copper, China's purchases of alternative supplies could change the perception of whether demand is weak or strong, said Kevin Norrish, director of commodities research at Barclays. Investors who only look at refined copper imports "miss the whole picture," Mr. Norrish said.

Coeur d'Alene Mines produces gold concentrate at a plant near Juneau, Alaska, above. The plant processes ore, shown on the left in the inset, to make the concentrate, shown on the right.

They're trying to get around that. a partner at Rhodium Group." The strategy also may help China protect itself against price spikes driven by its own rising demand. They are currently hovering around the lowest level in more than a year. 'fine. Word China was buying tons of bullion would likely send prices skyrocketing. and a founder of Goldcorp Inc. who tracks China's commodities purchases for the Heritage Foundation.. many smelters were closed down. but deals to acquire gold concentrate likely won't spark the same reaction. other firms are chasing similar deals. chief executive of US Gold Corp. he added. said 14 China-based smelters showed interest in buying concentrate that it is producing in North Queensland." said Rob McEwen. The country now has an annual capacity of processing 600 metric tons of gold. a chemical used to dissolve gold from the crushed ore. the world's fifth-largest gold miner by output. In North America. exceeding the gold it produces at home. China National Gold is expected to extract more than 25 tons of gold over the course of the 12-year pact with Coeur d'Alene Mines Corp." said Dennis Wheeler. Wheeler declined to disclose what China National paid." Mr. But. with many empty boats making their way back to China after dropping off exports to the West. which operates the Alaska mine. and it has a mar on it. Last week.000 ounces of gold annually. "What they're doing is picking the available fruit. China is one of the few countries where smelting capacities are growing.' " In the case of gold.." While China National's anticipated imports are the equivalent of just 2. And. Australian miner Conquest Mining Ltd. and the Chinese say. Coeur d'Alene's chief executive. with few new start-ups as a result of high capital expenditures and stringent environmental regulations. and buying the concentrate could be an easier way to acquire it without disturbing the finished market price.4% of China's official gold reserves. "All the good assets are locked up. which is toxic to humans and the environment. "The Chinese government has a very strategic plan." said Derek Scissors. which tracks China's economy. Chinese imports have been climbing sharply as its central bank started to build up its reserves and domestic interest in gold . expected to yield about 105. Other people don't want to eat it. "it might not come from traditional sources of supply." China National said it did the deal "to earn profits from processing. a New York-based corporate-consultancy firm. "China wants more gold. shipping costs are cheap. Processing gold concentrates isn't an easy undertaking. "They are going about the execution of the plan.The purchases also demonstrate Chinese producers' willingness to expend time. looking toward its future natural-resource needs. At issue is the usage of cyanide." said Trevor Houser. "The market will find ways to meet Chinese demand. rocks and dirt. energy and money extracting ore from tons of sand. but called it the best offer "in overall commercial terms.

89 billion.investment soared.'s April purchase of a 9% stake in Syncrude Canada. In 2009. China's gold demand reached 442 metric tons.. China Petroleum & Chemical Corp.com Copyright 2009 Dow Jones & Company. All Rights Reserved This copy is for your personal. an oil-sands producer. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law.. Inc.djreprints. water and a viscous form of petroleum that can be environmentally hazardous to process.pleven@wsj. paying $1. a mixture of clay. please contact Dow Jones Reprints at 1800-843-0008 or visit www. Write to Carolyn Cui at carolyn. China also has been making forays into oil sands. For non-personal use or to order multiple copies. But two other Chinese firms have also bought into oil-sands projects this year—PetroChina Co.284 barrels of oil a day from Syncrude. and China Investment Corp. which China also doesn't disclose. because China doesn't disclose imports of gold bullion. Those imports are hard for investors to see. —Sue Feng contributedto this article.com and Liam Pleven at liam. surpassing its supply of 411 tons. a London-based consultancy.65 billion to buy the stake and is entitled to receive 25. China Petroleum & Chemical paid $4.com . took a stake in Athabasca Oil Sands Corp.cui@wsj. Investors would typically see any bullion purchases from traditional sources. non-commercial use only. put roughly $800 million into a joint venture with Penn West Energy Trust. indicates it expects longterm demand to rise beyond what already-bullish crude imports show. according to GFMS Ltd. Gold concentrate imports. are more difficult to find. suggesting net imports of about 31 tons. That is small compared to overall Chinese consumption.

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